Based on economists, it is “unlikely” that European banks will undergo something as serious as in 2008.
Peter Macdiarmid/Staff/Getty Images
LONDON — The turmoil in the banking sector has raised the query of whether we’re teetering on the brink of one other financial crash like in 2008. But today’s banking crisis would look very different than it did 15 years ago due to social media, online banking and big regulatory changes.
This is “the first banking crisis of the Twitter generation,” Paul Donovan, chief economist at UBS Global Wealth Management, told CNBC earlier this month, referring to the collapse Credit Suisse.
Credit Suisse shares fell on March 14 after finding “significant weaknesses” in its financial reporting. The news kicked off a tumultuous five days for the lender, culminating in rival Swiss bank UBS agreeing to take over the beleaguered company.
“What social media has done has increased the importance of status, perhaps exponentially, and I believe that is a part of the problem,” added Donavan.
Social media offers “more room for spreading harmful rumors” in comparison with 2008, Jon Danielsson, director of the Center for Systemic Risk at the London School of Economics, said in an email to CNBC.
“The increased use of the web and social media, digital banking and the like, all make the economic system more fragile than it could otherwise be,” Danielsson said.
Social media not only allows rumors to spread more easily, but additionally much faster.
“This is a whole game changer,” said Jane Fraser, Citi’s CEO, at an event hosted by The Economic Club of Washington, DC last week.
“There are just a few tweets after which this thing [the collapse of Silicon Valley Bank] fell much faster than ever before,” Fraser added.
![This is the first banking crisis of the Twitter era, says economist](https://image.cnbcfm.com/api/v1/image/107210517-16790442551679044252-28617050741-1080pnbcnews.jpg?v=1679045518&w=750&h=422&vtcrop=y)
Regulators shut down Silicon Valley Bank on March 10 in what was the biggest collapse of a U.S. bank since the 2008 global financial crisis.
While information can spread in seconds, money can now be withdrawn just as quickly. Mobile banking has modified the fundamental behavior of bank users, in addition to the image of the financial collapse.
“There have been no lines outside the banks like Northern Rock in the UK [the financial crisis] – that did not occur this time – because you simply log on, click just a few buttons and also you’re done,” Paul Donavan told CNBC.
Based on Stefan Legge, head of tax and trade policy at the IFF Institute for Financial Studies at the University of St. Gallen, this mixture of rapid information dissemination and access to funds could make banks more vulnerable to attacks.
“It was once panic-inducing to see people lining up in front of bank branches, today we have now social media… In some ways, bank runs can occur much faster,” Legge told CNBC in an email.
Stronger balance sheets
The European Union has made huge efforts to strengthen the economic situation of the area in the aftermath of the financial crisis, including organising recent financial supervision institutions and conducting stress tests to attempt to anticipate difficult scenarios and stop market collapse.
The risk in the banking system today is much lower than at any time in the last 20 or 30 years.
Bob Parker
Senior Advisor at the International Capital Markets Association
This makes it “unlikely” for European banks to undergo something as serious as in 2008, Danielsson told CNBC.
“[Bank] funding is more stable, regulators are rather more sensitive to risks and capital levels are higher,” said Danielsson.
![Strategist: I don't buy the argument that large systemic risks are building up in the banking system](https://image.cnbcfm.com/api/v1/image/107212150-16793938291679393826-28673374496-1080pnbcnews.jpg?v=1679395363&w=750&h=422&vtcrop=y)
Today, banks are expected to have rather more capital as a buffer, and an excellent metric to measure the difference between today’s financial situation and 2008 was last week.
“In case you actually take a look at the top 30 or 40 world banks… leverage is low, liquidity is high. The risk in the banking system today is much lower than at any time in the last 20 or 30 years,” Parker said.
The European Banking Authority, which was established in 2011 in response to the financial crisis inside the European System of Financial Supervision, emphasized this in an announcement about the intervention of the Swiss authorities to assist Credit Suisse.
“The European banking sector is resilient, with solid levels of capital and liquidity,” the statement reads.
Problematic pockets in the sector
Nonetheless, individual players may encounter difficulties, irrespective of how resilient the sector as an entire is.
Parker described it as “places of pretty serious trouble” somewhat than problems rooted in the industry as an entire.
“I do not actually buy the argument that there is plenty of systemic risk build up in the banking system,” he told CNBC.
Fraser made similar observations when comparing the current banking system to what happened in 2008.
“It is not prefer it was last time, it is not a credit crunch,” Fraser said. “This is a situation where just a few banks are having some problems and we higher make certain we nip it in the bud.”
Trust is key
Based on Thomas Jordan, president of the Swiss National Bank, considered one of the similarities between the 2008 crisis and the current financial situation is trust, with “insecurity” playing a big role in the recent turmoil of European banks.
“I don’t think that [mobile banking] was the source of the problem. I believe it was a scarcity of trust, trust in various banks, and that contributed to this case,” Jordan said at a press conference on Thursday.
If trust is lost, anything can occur.
Stefano Ramelli
Assistant Professor in Corporate Finance at the University of St. Gallen
José Manuel Campa, president of the European Banking Authority, said last week that at the same time as banks improved their capital and liquidity positions and improved regulation and supervision, “failures and insecurity” could still occur.
“We want to remain vigilant and never get complacent,” Campa told the European Parliament during discussions over the collapse of the Silicon Valley Bank.
Trust and confidence in the system is a “fundamental law of finance,” in accordance with Stefano Ramelli, assistant professor of corporate finance at the University of St. Gallen.
“The most vital capital for banks is the trust of depositors and investors. If trust is lost, anything can occur,” Ramelli said.